Portugal to get 80 billion euro bailout

EU finance ministers agreed to an 80 billion euro ($115.2 billion/1.95 trillion Kč) bailout for Portugal after months of speculation about the country's ability to dig itself out of debt, but the agreement could prove complicated as it demands harsh austerity measures during a time when Portugal is being led by an interim government.

Terms for the bailout have yet to be defined but will likely be a cocktail of contributions from the International Monetary Fund (IMF), the European Financial Stability Facility (EFSF) and the European Financial Stabilization Mechanism (EFSM), around 11.25 billion Kč of which is guaranteed by the Czech Republic's contribution to the EU budget.

EU finance ministers at an April 8 meeting in Hungary called for Portugal to implement a "fully fledged, most likely three-year program" with "strict conditionality" that appears far bleaker than those austerity measures rejected by lawmakers that prompted last month's resignation of Prime Minister José Sócrates.

"This creates problems with consistency. There has to be an intermediate way before elections that can be finalized after elections," said Janis Emmanouilidis, a senior policy analyst at the European Policy Centre in Brussels. "You have to make sure if the interim caretaker government agrees on the first part, it is supported by all the government and the opposition."

The announcement of the bailout - the third after Ireland's 85 billion euro bailout and Greece's 110 billion euro bailout - hardly came as a shock to the European Union, experts said. But it does highlight tensions between the vastly different economies under the single currency, and could "definitely test the coalition," said Jiří Čáslavka, an analyst in the economic and financial policies program at Prague-based firm Glopolis.

"A more effective way to ensure eurozone stability would be to create a new EU bond," he said.

However, those increased tensions should not be seen as deadly cracks in the common currency union, Emmanouilidis said, particularly as the first steps begin toward fiscal reform, approved in Brussels last month.

"What has been put together in the last year is enormous. If you had told me there would be a stability mechanism 15 months ago, I would have told you that is a dream," he said. "It doesn't mean that by having this in place the crisis is over. We need to implement this and do our homework and go through the difficult phases, but the EU has made a lot of progress."

Some say Portugal's attempts to get out of debt, which has crawled up to around 90 percent of its annual GDP, will be further complicated by the European Central Bank's decision to raise the interest rate to 1.25 percent, which will make paying off debt more expensive.

Although increasingly unlikely, according to experts, what would strike a significant blow to the eurozone and compromise the entrance of floating-currency member states into the eurozone would be if Spain, which is currently experiencing ongoing high unemployment and low growth, required a bailout.

"Bailing out Spain would prove to be a huge problem for the eurozone and would definitely affect the attitudes of politicians to enter the eurozone," said Tomáš Búry, an EU financial affairs expert at the Prague-based Association for International Affairs (AMO), as Spain is the EU's fifth-largest economy. "I don't think the eurozone could afford a bailout for Spain. I think there would have to be agreements among [national] banks to share losses, and that would be quite a big political issue in the Czech Republic, as well."

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com